Inflation also fries McDonald’s (and other big names in the food sector)
Inflation hasn't seemed to hit McDonald's yet, but between rising prices, labor shortages and changing consumer habits, the outlook has changed a bit and new technologies are making an appearance. Facts, numbers and comments
In the end, inflation did not spare even the large fast food chains and the largest food companies. Starting with McDonald's, which has increased menu prices by 100% since 2014.
But Starbucks, KFC, Pizza Hut and Taco Bell also have to deal with rising prices, labor shortages and wage increases, which they could remedy by exploiting new technologies such as artificial intelligence (AI).
In the meantime, however, consumers, who are more careful about their spending, currently seem to prefer food stores to fast food outlets.
INFLATION ANXIETY
In the United States, inflation has fallen significantly from its 2022 peaks but remains high , despite the efforts of the Federal Reserve, and consumers, however optimistic, continue to be concerned about it .
“Customers are tired of inflation,” said Jerry Sheldon, vice president of market research firm IHL Group.
Even as the overall economy continues to grow steadily, “large fast food chains and other food companies have struggled to stop inflation anxiety hitting sales,” writes Quartz . And for executives this impacts pricing, customer numbers and growth plans.
That's why, in recent weeks, a series of quarterly earnings reports from some of the largest food companies have put the spotlight on rising menu prices, labor shortages, wage increases and turnaround initiatives, some of which include the use of AI technology.
ALL MCDONALD'S INCREASES
To counteract the effects of inflation, McDonald's began raising prices some time ago. A strategy that initially proved to be successful in terms of both revenue and sales, but which is now starting to crumble. In fact, this week the fast food chain said that sales in the United States grew 2.5% in the first quarter, but overall sales fell compared to the previous year. The reasons are both consumers' increased attention to their wallets and the boycotts linked to the war between Israel and Hamas, which are affecting various American companies, including Starbucks and Shake Shack .
However, the increase in sales that McDonald's has recorded is partly due to more expensive menus, which have increased the average value of receipts. In 2023, the golden arches company has raised menu prices by 10% and, according to a study by FinanceBuzz, by 100% since 2014 . The data firm also found that some products, including McChicken sandwiches and medium fries, have seen a price increase of nearly 200%.
SAME STORY FOR STARBUCKS, KFC, PIZZA HUT AND TACO BELL
But McDonald's isn't the only one in this situation. Starbucks said last week that store sales fell 4% in the second quarter. And, Quartz notes that Yum Brands, owner of KFC, Pizza Hut and Taco Bell, also reported that worldwide store sales fell 3% in the first quarter. In particular, the KFC and Pizza Hut divisions decreased by 2% and 7% respectively, while those of Taco Bell increased by 1%.
For Chris Kempczinski, CEO of McDonald's, "the slowdown is a wake-up call" and "consumers are more demanding with every dollar they spend." The type of customers is also changing, in fact, McDonald's no longer attracts low-income consumers as it once did, but rather those belonging to the medium-high range.
This change in trend, according to Quartz , could benefit grocery stores, or at least some of them like Kroger, Aldi and Walmart. “When people give up on restaurants, they often turn to fast food, and if that starts to get very expensive, they turn to grocery stores,” said IHL Group's Sheldon.
IS AI THE SOLUTION?
Again according to Sheldon, one way companies can not only win back customers but also cut costs is by relying on technology, which “accelerates table turnover and reduces labor costs.”
Last July, for example, the Chipotle chain began testing Autocado, a robot capable of cutting, pitting and peeling avocados, and last month its CEO, Brian Niccol, declared that the company has "already prototypes” and “feels ready to take them to a restaurant”. The CEO plans to deploy some of the robots in popular stores this year.
McDonald's has also been testing digital kiosks since 2003, but could make further efforts to reduce labor costs. As Sara Senatore, Bank of America's senior restaurant analyst, said, "If the labor cost is double or triple the investment, maybe the investment pays for itself."
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/linflazione-frigge-anche-mcdonalds-e-altri-big-del-settore-alimentare/ on Thu, 09 May 2024 10:21:05 +0000.